AUDIT REPORT ON UCO BANK

INTRODUCTION The audit of banking companies plays a very important role in India as it help to regulate the banking companies in right manner. In audit of banks includes various types of audit which are normally carried out in banking companies such as statutory audit, revenue/income expenditure audit, concurrent audit, computer and system audit etc. the above audit is mainly conducted by the banks own staff or external auditor. However, the rules and the regulation relating to the conduct of various types of audit or inspections differ from a bank to bank expect the statutory audit for which the RBI guidelines is applicable. In this, I have given more importance on the overall bank audit system. In todays competitive world audit is very much necessary as well as compulsory , because investor investing decision is depend on that particular concept if auditor has expressing his view about particular organization is true and fair then investor can get his ideas about how much he should invest in particular companies. ORIGIN AND EVOLUATION OF AUDITING 1) Origin of term : The term audit is derived from the Latin term audire mean to hear. In early days, an auditor used to listing to the account read out by the accountant in order to check them. 2) Ancient origin : Auditing is as old as accounting. It was in use in all ancient countries such as Mesopotamia, Egypt, Greece, Rome, U.K., and India. The Vedas,Ramayana, Mahabharata contain references to accounting and auditing. Arthashasastra by Kautilya gives detailed rules for accounting and auditing of public finances. The Mauryas, the Guptas and the Mughals had developed and

AUDIT REPORT ON UCO BANK

accounting and auditing system to control state finances. Thus, basically, accounting and auditing had their origin in the need for the government to control the income and expenditure of the state and the army. The original object of auditing was to detect and prevent errors and frauds. 3) Compulsory audits of companies: With increasing number of companies, the companies acts in different countries began providing for compulsory audit of accounts of companies. Thus U.K. audit of accounts of limited companies became compulsory in 1900. In India, the companies act, 1913 made audit of company accounts compulsory. With increase in size of companies, the object of audit also shifted to ascertaining whether the accounts were true and fair rather than true and correct. Thus, the emphasis was not arithmetical accuracy but on fair representation of financial affairs. 4) Development of accounting and auditing standard: The international accounting standards committee and the accounting standards board of institute of chartered accountant of India have developed standard accounting and auditing practices to guide the accountants and auditor in their day-to-day work. 5) Computer technology: The latest development in auditing pertains to the use of computers in accounting as well as auditing. Really, auditing has come a long way from hearing the accounts in the ancient day to using computers to examine computerized accounts of today.

AUDIT REPORT ON UCO BANK

DEFINITION OF AUDITING Various persons such as the owners, shareholders, investors, creditors, lenders, government etc. use the final account of business concern for different purposes. All these users need to be sure that the final accounts prepared by the management are reliable. An auditor is an independent expert who examines the accounts of a business concern and reports whether the final accounts are reliable or not. Different authorities have defined auditing as follows. Mautz define the auditing as auditing is concerned with the verification of accounting data, with determining the accuracy and reliability of accounting statement and reports. International auditing guidelines defines the auditing as auditing is an independent examination of financial information of any entity with a view to expressing an opinion thereon. BASIC PRINCIPAL OF AUDITING: 1) Integrity, objectivity and independence: The auditor should be honest and sincere in his audit work. He must be fair and objective. He should also be independent. 2) Confidentiality: The auditor should keep the information obtained during audit, confidential. He should not disclose such information to any third party. He should, keep his eyes and ears open but his mouth shut. 3) Skill and competence:

AUDIT REPORT ON UCO BANK

The auditor should have adequate training, experience and competence in Auditing. He should have a professional qualification ( i.e. be a Chartered Accountant) and practical experience. He should be aware of recent developments in the field of auditing such as statement of ICAI, changes in company law, decisions of courts etc. 4) Working papers: The auditor should maintain working papers of important matters to prove that audit was conducted with due care according to the basic principles. 5) Planning: The auditor should plan his audit work. He should prepare an audit programmed to complete the audit efficiently and in time. 6) Audit evidence: The report of the auditor should be base on evidence obtained in the course of audit. The evidence may be obtained through vouching of transactions, verification of assets and liabilities, ratio analysis etc. 7) Evaluation of accounting system and internal control: The auditor should ensure that the accounting system is adequate. He should see that all the transaction have been properly recorded. He should study and evaluate the internal controls. 8) Opinion and report: The auditor should arrive at his opinion on the account based on the audit evidence and submit his report. The opinion may be unqualified, qualified or adverse. The audit report should clearly express his opinion. Law should require the content and form of audit report. AUDIT COMMITTEE In pursuance of RBI circular September 26, 1995, a bank is required to constitute an Audit Committee of its Board. The membership of the audit

AUDIT REPORT ON UCO BANK

committee is restricted to the Executive Director, nominees of Central Government and the RBI, Chartered Accountant director and one of the nonofficial directors. One of the functions of this committee is to provide direction and oversees the operations of the total audit function in the bank. The committee also has to review the internal inspection function in the bank, with special emphasis on the system, its quality and effectiveness in terms of follow up. The committee has to review the system of appointment and remuneration of concurrent auditors. The audit committee is, therefore, connected with the functioning of the system of concurrent audit. The method of appointment of auditors, their remuneration and the quality of their work is to be reviewed by the Audit Committee. It is in this context that periodical meeting by the members of the audit committee with the concurrent auditors help the audit committee to oversee the operations of the total audit function in the bank. Considering the coverage of this audit assignment and the specialized nature of work there is also a need for training to be imported to the staff of the auditors. This training has to be given in specialized field such as foreign exchange, computerization, and areas of income leakage, fraud prone areas, determination of credit rating and other similar specialized areas. The bank can organize such training programmed at various places so that it can ensure the quality of audit.

AUDIT REPORT ON UCO BANK

ADVANTAGES OF AUDITING 1) Assurance of true and fair accounts: Audit provides an assurance to the various users of final accounts such as owners, management, creditors, lenders, investors, governments etc. that the accounts are true and fair. 2) True and Fair balance sheet: The user accounts can be sure that the assets and liabilities shown in the audited balance sheet show the concern, as it is i.e. neither more nor less. 3) True and fair profit and loss account: The user can be confident that the audited profit and loss account shows the true amount of profit or loss as it is i.e. neither more nor less. 4) Tally with books: The audited final account can be taken to tally with the books of accounts. Thus, the income-tax officer can start with the figure of audited books profit, make adjustments and compute the taxable income. An outside user need not go through the entire books. 5) As per standard accounting and auditing practices: The audited final accounts follow the standard accounting and auditing principles laid down by professional bodies. 6) Detection and prevention of errors and frauds: Audited accounts can be assumed reasonably free from errors and frauds. The auditor with his expert knowledge would take due care to see that Errors and frauds are detected so that the accounts shoe a true and fair view. 7) Advice on system, taxation, finance: The auditor can also advise the client about the accounting system, internal control, internal check, internal audit, taxation, finances etc.

AUDIT REPORT ON UCO BANK

LIMITATIONS OF AUDITING 1. An auditor cannot check each and every transaction he has to check only the selected areas and transaction on a sample basis. 2. Audit evidence is not conclusive in nature thus confirmation by a debtor is not conclusive evidence that the amount will be collected. It is said evidence is rather than conclusive in nature. 3. An auditor cannot be expected to discover deeply laid frauds usually involves acts designed to conceal them such as forgery , celibate failure to record transactions, false explanation and hence are difficult to detect. 4. Audit cannot assure the users of account about the future profitability, prospects or the efficiency of the management. 5. An auditor has to rely upon expert auditor may have to rely on expert in related field such as lawyers, engineers, values etc. for estimating contingent liabilities, valuation of fixed assets etc. STAGES IN AUDITING 1) Preliminary work: a) The auditor should acquire knowledge of the regulatory environment in which the bank operates. Thus, the auditor should familiarize himself with the relevant provisions of applicable laws and ascertain the scope of his duties and responsibilities in accordance with such laws. He should be well acquainted with the provisions of the Banking Regulation act, 1956 in the case of audit of a banking company as far as they relate of preparation and presentation of financial statements and their audit. b) The auditor should also acquire knowledge of the economic environment in which the bank operates. Similarly, the auditor needs to acquire good

AUDIT REPORT ON UCO BANK

working knowledge of the services offered by the bank. In acquiring such knowledge, the auditor needs to be aware of the many variation in the basic deposit, loan and treasury services that are offered and continue to be developed by banks in response to market conditions. To do so, the auditor needs to understand the nature of services rendered through instruments such as letters of credit, acceptances, forward contracts and other similar instruments. c) The auditor should also obtain and understanding of the nature of books and records maintained and the terminology used by the bank to describe various types of transaction and operations. In case of joint auditors, it would be preferable that the auditor also obtains a general understanding of the books and records, etc, relating to the work of the other auditors. d) RBI has introduced and offsite surveillance system for commercial banks on various aspects of operations including solvency, liquidity, asset quality, earnings, performance, insider trading etc., and has indicated that such reports shall be submitted at periodic intervals from the year commencing 1-04-1995. It will be appropriate to be familiar with the reports submitted and to review them to the event that they are relevant for the purpose of audit. e) In a computerized environment the audit procedure may have to appropriately tuned to the circumstances, particularly as the books are not authenticated as in manually maintained accounts and the auditor may not have his in-house computer facility to taste the software programmes. The emphasis would have to be laid on internal control procedure related to inputs, security in the matter of access to EDP system, use of codes, passwords, data inputs being prepared by person independent of key operators and other build-in procedure for data validation and system

AUDIT REPORT ON UCO BANK

controls as to ensure completeness and correctness of the transaction keyed in. system documentation of the software may be obtained and examined. f) One set of tests that the auditor at both the branch level and head office level may apply for audit of banks in analytical procedure. 2) Evaluation of internal control system: It may be noted that transaction in banks are voluminous and repetitive, and fall into limited categories/heads of account. It may, therefore, be more appropriate that the evaluation of the internal control is made for each class/category of transaction. If the exercise of internal control evaluation is properly carried out, it assist the auditor to determine the effectiveness or otherwise of the control systems and accordingly enable him to strengthen his audit procedures, and lay appropriate emphasis on the risk prone areas. Internal control would include accounting control administrative controls. a) Accounting controls: Accounting controls cover areas directly concerned with recording of financial transactions and maintenance of such registers/records as to ensure their reliability. The internal accounting controls as would ensure prevention of errors, omissions and irregularities would include following: I. II. III. No transaction can be registered/recorded unless it is sanctioned/approved by the designated authority. Built- in dual control/supervisory procedures ensure that there is an independent automatic check on input/vouchers. No single person has authority to initiate transaction and record through all stages to the general ledger. Each day transactions are accurately and promptly recorded, and the control and subsidiary records are kept balanced through personnel independent of each other.

AUDIT REPORT ON UCO BANK

The auditor would be well advised to look into other areas may lead to detection of errors, omissions and irregularities, inter alias in the following: I. II. Missing/loss of security paper, stationery forms. Accumulation of transactions/balances in nominal heads of accounts like suspense, sundries, inter-branch accounts, or other nominal head of accounts particularly if there accounts particularly if these accounts are extensively used to balance books, despite availability of information. III. IV. Accumulation of old/large unexplained/unsubstantiated entries in accounts with Reserve Bank of India and other banks and institutions. Transaction represented by or mere upon book adjustments non-honoring not of evidenced/substantiated contracts/commitments. V. VI. VII. Origination debits I head office accounts/inter-branch accounts. Analytical review procedure. Serious irregularities pointer out in internal audit/inspection/special audit VIII. Complaints/matters pending in the vigilance/grievances cell, as regards discrepancies in accounts of constituents, etc. IX. Results of periodic analytical review, if observed as adverse. a) Administrative control: These are broadly concerned with the decision making process and laying down of authority/delegation of powers by the management. It may be noted that in the normal course, the head office use the zonal/regional offices do not conduct any banking business. They are generally responsible for administrative and policy decisions which are executed at the branch level.

AUDIT REPORT ON UCO BANK

3) Preparation of audit programme for substantive testing and its execution Having familiarized him the requirements of audit, the auditor should prepare an audit programme for substantive testing which should adequately cover the scope of his work. In framing the audit programme, due weightage should be given by the auditor to areas where, in his view, there are weaknesses in the internal controls. The audit programme for the statutory auditors would be different from that of the branch auditor. At the branch level, basic banking operation are to be covered by the audit. On the other hand, the statutory auditors at the head office (provisions for gratuity, inter- office accounts, etc.). 4) Preparation and submission of audit report The branch auditor forwards his report to the statutory auditors who have to deal with the same in such manner, as they considered necessary. It is desirable that the branch auditors reports are adequately in unambiguous terms. As far as possible, the financial impact of all qualification or adverse comments on the branch accounts should be clearly brought out in the branch audit report. It would assist the statutory auditors if a standard pattern of reporting, say, head wise, commencing with assets, then liabilities and thereafter items related to income and expenditure, is followed. In preparing the audit report, the auditor should keep in mind the concept of materiality. Thus, items which do not materially affect the view presented by the financial statements may be ignored. However, in the judgement of the auditor, an item though not material, is contrary to accounting principles or any pronouncements of the Institute of Chartered Accountants of India or in such as would require a review of the relevant procedure, it would be appropriate for him to draw the attention of the management to this aspect in his long form audit

AUDIT REPORT ON UCO BANK

report. In all cases, matters covering the statutory responsibilities of the auditor should be dealt with in the main report. BOOKS OF ACCOUNTS OF BANKS A banking company is required to maintain the books of accounts in accordance with sec.209 of the companies act. There are, however, certain imperatives in banking business they are the requirements to maintain accurate and always up to date account. Banks, therefore, device their accounting system to suit these requirements. The main characteristics of a banks system of book keeping are as follows: A. The vouchers entered into different personal ledgers each day are summarized on summery sheet; the totals of each are posted to the control accounts in the general ledger. B. The general ledger trail balance is extracted and agreed every day. C. All entries in the detail personal ledgers and the summary sheet are check by person other than those who have made the entries, with the general results that most clerical mistakes are detected before another day begins. D. A trial balance of the detailed personal ledgers is prepared periodically, usually every two weeks, and agreed with the general ledger control accounts. E. Expecting for cash transactions, always two vouchers are prepared for each transaction, one for debit and the other for credit. This system ensures double entry at the basic level and obviates the possibility of errors in posting. PRINCIPAL BOOKS OF ACCOUNT General ledger:

AUDIT REPORT ON UCO BANK

It contains control accounts of all personal ledgers, the profit and loss account and different assets and liabilities accounts. There are certain additional accounts known as contra accounts, which is unique feature of bank accounting. These contra accounts are maintained with a view to keeping control over transactions, which have no direct effect on the banks positions. Profit and Loss ledgers; Some banks keep one account for profit and loss in this general ledger and maintained separate books for the detailed accounts. These are columnar books having separate columns for each revenue receipt and expense head. Other banks keep separate books for debits and credits posted are entered in to the profit and loss account in the general ledger. SUBSIDIARY BOOKS OF ACCOUNTS Personal ledgers: Separate ledgers are maintained by banks for different types of accounts, i.e. current account, saving account, etc. As has been maintained earlier, these ledgers are posted directly from vouchers and the entire vouchers entered in each ledger in a day are summarized in to Voucher Summary Sheets. Bill Registers: Details of different types of bills are kept in separate registers, which have suitable columns. For e.g. bill purchased, inward bill for collection, outward bills for collection etc are entered serially day to day in separate registers. Entries in these registers are made by reference to the original documents. Other subsidiary registers:

AUDIT REPORT ON UCO BANK

There are different registers for various types of transaction. Their number, volume and details, which differ according to the individual needs of each bank. For example, there will be registers for: A. Demand drafts, telegraphic and mail transfers issued on branches or agencies. B. Demand drafts, telegraphic and mail transfers received from branches and agencies. C. Letters of credit. D. Letter of guarantee. Departmental journals: Each department of bank maintains a journal to note the transfer entries passed by it. These journals are memoranda book only, as all the entries made there are also made in the daybook, through voucher summary sheets. The purpose is to maintain a record of all transfer entries originated by each department. Other memoranda books: Besides the book mentioned above, various departments of a bank have to mention a number of memoranda books to facilitate their work. Some of the important books are described below: o Receiving cashiers cash book o Paying cashiers cash book o Main cash book o Cash balance book The main cashbook is maintained by a person other than cashier. Each cashier keeps a separate cashbook. When cash is received, it is accompanied by pay-in-

AUDIT REPORT ON UCO BANK

slips or other similar documents. The cashier makes entry in his book, which is check by the chief cashier. Outward clearings: A person checks the vouchers and list with the clearing cheques received books. The voucher are then sent to appropriate departments, where customers account are immediately credited. Inward clearing: Cheques received are check with the accompanying list. These are then distributed to differed department and number of cheques given to each department is noted in a memo book. Loans and overdrafts departments: a) Registers for shares and other securities held on behalf of its customer b) Summary books of securities give in details of government securities. c) Godown registers maintained by the Godown keepers of bank. d) Overdraft sanction register e) Drawing power book. f) Delivery order books. g) Storage books. Deposit department: a) Account opening and closing registers. b) Fixed deposits rate register. c) Due date dairy. d) Specimen signature book. Establishment department: a) Salary and allied registers. b) Register of fixed assets.

AUDIT REPORT ON UCO BANK

c) Stationary registers d) Old record registers General: a) Signature books of bank officers b) Private telegraphic code and ciphers Statically books: Statically records kept by different books are in accordance with their individual needs. For example, there may be books for recording: a) Average balances in loans etc. b) Deposits received and amounts paid out each month in the various departments. c) Number of cheques paid. d) Number of cheques, bills and other items collected. Incomplete records: In some situations, the auditor may find that certain accounting and other records are not up to date. In such a situations, the auditor should first ascertain the extent of arrears in housekeeping and the areas in which accounting and other records are not up to date. It may also be noted that in Long Form Audit Report (LFAR0), the auditor has to make detailed observation on such arrears. VERIFICATION OF ASSETS AND LIABILITES Capital and Liabilities: 1) Capital The following particulars have to be given in respect of share capital in the balance sheet For nationalized banks

AUDIT REPORT ON UCO BANK

The capital owned by central government as on the date of balance sheet including contribution from government, if any, for participation in world bank project should be shown. For banks incorporated outside India Capital (the amount brought in by banks by way of start up capital as prescribed by RBI shown under this head) Amount of deposit kept with RBI under section 11(2) of the banking regulation act, 1949. For other banks Authorized capital Issued capital Subscribed capital Called-up capital Less: calls unpaid Add: forfeited shares The auditor should verify the opening balance of capital with reference to the audited balance sheet of the previous year. In case there has been increase in capital during the year, the auditor should examine the relevant documents supporting the increase. For example, in case of an increase an authorized capital of a banking company, the auditor should examine the special resolution of shareholders and the memorandum of association. An increase in subscribed and paid-up capital of a banking company, on the other hand, should be verified with reference to prospectus/ other offer document, reports received from registers to the issue, bank statement, etc. 2) Reserves and surplus: (shares of Rs.each) (-do-) (-do-) (-do-)

AUDIT REPORT ON UCO BANK

The following are required to be disclosed in the balance sheet under the head Reserves and Surplus. a) Statutory reserves. b) Capital reserves. c) Share premium. d) Revenue and other reserves. e) Balance in profit and loss account. The auditor should verify the opening balances of various reserves with reference to the audited balance sheet of the previous year. Addition to or deductions from reserves should also be verified in the usual manner, 3) Deposits: Deposits are required to be classified in the balance sheet under the following heads. A. 1. Demand Deposits (i) (ii) 3. Term Deposits (i) (ii) From banks from others From banks from others

2. Saving Bank Deposits

I. Deposits of Branches in India. II. Deposits of Branches outside India. I. Current account: The auditor should verify the balances in individual accounts on a sampling basis. He should also examine whether the balances as per subsidiary ledgers tally with the related control accounts in the general ledger.

AUDIT REPORT ON UCO BANK

The auditor should consider the debit balances in current account are not netted out on the liabilities side but appropriately included under the advances. Inoperative accounts are a common area of frauds in banks. While examining current account, the auditor should specifically cover in his sample some of the inoperative account revived during the year. The auditor should ascertain whether inoperative are revived only with proper authority. For this purpose, the auditor should identify cases where there has been a significant reduction in balances compared to the previous year and examine the authorization for withdrawals. II. Saving bank deposits: The auditor should verify the balances is individual account on a sampling basis. He should also examine whether the balances as per subsidiary ledgers tally wit the related control accounts in the general ledger. III. Term deposits: Term deposits are deposits repayable after a specified period. They are considered time liabilities of the bank. IV. Deposits designated in foreign currencies: In the case of deposits designated in a foreign currency, for e.g. foreign currency non-resident deposits, the auditor should examine whether they have been converted into Indian rupees at the rate notified in his behalf by the head office.

V. Interest accrued but not due: The auditor should examine that interest accrued but not due on deposits is not included under the deposited but is shown under the head other liabilities ad provision

AUDIT REPORT ON UCO BANK

2) Borrowing: Borrowings of a bank are required to be shown in balance sheet as follows: I. Borrowing in India. a. Reserves Bank of India. b. Other banks. c. Other institution and agencies. II. Borrowing from RBI, other banks/financial institution etc. should be verified by the auditors with reference to confirmation certificated and other supporting document such as agreements, correspondence etc. The auditor should also examine whether a clear distinction has been made between rediscount and refinance for disclosure of the amount under the above head since rediscount does not figure under this head. Other current liabilities: The third schedule to the banking Regulation act, 1949, requires disclosure of the following items under the head other liabilities and provision Bills payable Inter office adjustments. Interest accrued Other (including provisions) The auditor may verify the various items under the head other liabilities and provision in the following manner. Bills payable Bills payable represent instrument issued by the ranch against money received from customers, which are to be paid to the customers or as per his order. These include Demand Draft, Telegraphic Transfer, and Mail transfer and Mail Transfer,

AUDIT REPORT ON UCO BANK

Traveller cheques, Pay order, Banker cheques, and similar instrument issued by the bank but not presented for payment until the balance sheet date. Inter office adjustment: The balanced in inter office adjustment account, if in credit, is to be shown under this head. Interest accrued: Interest accrued but not due on deposit is to be shown and borrowing is to shown under this head. The auditor should examine this with reference to terms of various type of deposits and borrowings. It should be specially examined that such interest has not been clubbed with the deposits and borrowing shown under the deposits and borrowing. Other According to the notes and instructions for compilation of balance sheet and profit and loss account, issued by the Reserve Bank of India, the following items are to be included under this head. Net provision for income tax and other taxes like interest tax, less advances payment and tax deducted at source. Surplus in aggregate in provision for bad and doubtful debts provision account. Contingency funds, which are actually in the nature of reserved but are not disclosed as such. Provision towards standard assets. These are to shown separately as contingent standard assets. ASSETS: Cash, bank balanced and money at call and short notice:

AUDIT REPORT ON UCO BANK

The third schedule to the Banking Regulation act, 1949, requires following disclosure to the be made in the made in the balance sheet regarding cash, balances with Reserve Bank of India., balance with other bank, and money at call and short notice. Cash and balance with Reserve Bank of India. I. Cash in hand (including foreign currency notes) II. Balance with Reserve Bank of India a) In current account b) In other account Balanced with banks money at call and short notice I. In India A) Balanced with banks 1. In current account 2. In other deposits account. B) Money at call and short notice 1. With banks 2. With other institutions II Outside in India 1. In current accounts. 2. In other deposits account. 3. Money at call and short notice. Cash Reserved: One of the determinants of cash balance to be maintained by banking companies and other schedule is the requirement for maintenance of certain minimum cash reserve. While the requirement for maintenance of cash reserve by banking companies is contained in the banking regulation act,1949 corresponding requirements for schedule bank is contain in the Reserve Bank of India.

AUDIT REPORT ON UCO BANK

Statutory liquidity ratio: Section of 24 the act requires that every banking company shall maintain in India in cash, gold or unencumbered approved securities an amount which shall not, at the close of business on any day, be less than twenty five percent, or such other percentage not exceeding forty, as the RBI bank form time to time, of total demand and time liabilities in India as on last Friday of the second preceding fortnight. Deposits by foreign banking company: Section 11(2) of the act requires the banking companies incorporated outside India to deposit with RBI certain amount either in cash or in unencumbered securities or partly in cash and partly in such securities. 2) Investment: The auditor should verify the investment scripts physically at the close of business on the date of balance sheet. In exceptional cases where physical verification of investment scripts on the balance sheet date is not possible the auditor should carry out the physical verification on a should take in to consideration any adjustment for subsequent transaction of purchase, sale etc. he should take particular care to see that only genuine investment are produced before him. 3) Advances: In carrying out of audit of advances, the auditor of advances, the auditor is primarily concerned with obtaining evidence about following a) Amount included in balance sheet in respect of advances are outstanding at the date of balance sheet. b) Advances represent amount due to the bank. c) There are no unrecorded advances.

AUDIT REPORT ON UCO BANK

d) The stated basis of valuation of advances is appropriate and properly applied, and that the recoverability of advances is recognized in their valuation. e) The advances are disclosed, classified and describe accordance with recognized accounting policies and relevant statutory and regulatory requirements. f) The auditor should ascertain the statues of balancing of subsidiary ledger relating to advances. g) The auditor should review the operation other advances accounts. 4) Fixed assets: In carrying out an audit of fixed assets, the auditor is concerned primarily with obtaining evidence about their existence and valuation. The branch auditor should ascertain whether the accounts in respect of premises and/or other fixed assets are maintained at the branch or centrally. Similarly, he should ascertain the location of documents of title or other documents evidencing ownership of various items of fixed assets. The auditor should verify the opening balance of premises with reference to schedule of fixed assets, ledger or fixed asset register. In respect of fixed assets sold during the year, a copy of the sale deed and receipt of the salve value should examined by the auditor. 5) Other assets: The auditor should see that whether there are any reversals entries indicating the possibility of irregular payments or frauds in case of inter- office adjustments. The auditor should also pay attention towards interest-accrued part from the banks

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point of view. The auditor should see that internal control over stationery items. The auditor should verify the stationery and stamps. The auditor should examine the non-interest bearing advances to the staff with reference to the relevant documentation. The auditor should also see that the entries under the head suspense account. The auditor should also verify prepaid expenses in the same manner as in the case of entities. N.P.A.GUIDELINES The guideline requires the banks to classify their advances in four broad categories as follows:1. Standard asset:A standard asset is one, which does not disclose any problems, and which does not carry more than normal risk attached to the business such asset is not a nonperforming asset. 2. Sub-standard asset: It is one, which has been classified as N.P.A. for period not exceeding not more than 18 months. 3. Doubtful asset: It is one, which remained has N.P.A for period exceeding 18 months. 4. Loss asset: It is one where the loss has been identified by the bank or the internal or external auditors or the RBI inspection, but the amount has not been written off wholly or partly in other words such asset is considered uncollectible and of such little value that its continuous as bankable asset is not warranted through although there may be some salvage or recovery value.

AUDIT REPORT ON UCO BANK

With the view to moving towards international based practices and to ensure greater transference it has been decided to adopt the 90 days overdue norms for identification. Of N.P.A. from the year ending 31 st March 2004, according with effect from 31st march 2004, a non-performing asset shall be a loan or advances where, i. ii. iii. iv. Interest and installment of principle remains overdue for the period of more than 90 days in respect of term loan. The account remains out of order for period of more than 90 days. In respect of overdraft or cash credit limit. The bill remains overdue for period of more than 90 days in the case of bills purchased and discounted. Interest and installment of principle remains overdue for two harvest season but not exceeding 2.5 years in the case of advanced granted for agriculture purpose. v. Any amount to be received remains overdue for a period of more than 90 days in of other account. The identification of N.P.A. is to be on the basis of the position as on balance sheet day if an account has been regularized before the balance sheet day by payment of overdue amount through genuine sources and not by sanction of additional facilities or transfer of funds between accounts, the accounts need not be treated as N.P.A. the bank should however ensured that the accounts remains in order subsequently. If the account is out of order or deficient for a temporary period due to non-availability of adequate drawing power. Non-submission of stock statement, non-renewal of due date, will not classify as N.P.A. N.P.A. classification will be as per borrower wise and not facility wise. It means that if any of the credit facilities granted to a borrower becomes non-performing

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all the facilities granted to a borrower will have to be treated as N.P.A. without having any regard to performing status of other facilities. Some of the Exemptions are their as follows, i. Project finance: In the case of bank, finance given for industrial project or for agricultural status where moratorium period is available for payment of interest, payment of interest becomes due after the moratorium period is over and not on the date of debit of interest. Advance to Staff: As in the case of project finance in respect of housing loan all similar advances granted to staff members where interest is payable after recovery of principle. The overdue status should be recognized from the date when there is default in payment of interest on due date of payment. ii. Agricultural Advances Affected by Natural Calamities: In terms of RBI instruction where Natural calamities in fairs the repayment capacity of agricultural borrower the bank can convert short term production loan, in to term loan or reschedule the repayment and sanction them short term loan loans in such cases the term loan as well as fresh short term may be treated as current dues and need not be classified as N.P.A. iii. Loans and Advances backed or supported by government: Any loans and advances provided by the bank under any scheme introduced by GOVT. like PMRY. Scheme will not be treated as N.P.A. though the account in overdue or outstanding for more than 90 days. iv. Advances secured against certain instruments: Advances secured against Term Deposits, National Saving Certificate eligible for surrender, Indira Vikas Pattra and Life Insurance Policies have been exempted

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from the above guidelines thus interest on such advances may be taken to income account on due provided adequate margins available in respect of such accounts. In respect of consortium advances each bank may classify the borrower accounts according to the own record of recovery and other aspect. Having a bearing on the recoverability of the advances. Provisioning for Loans and Advances: The guidelines require provisions for different classes of advances to be made as follows: Standard Asset: A general provision of minimum of 0.25% on total standard asset should be made. Sub-standard Asset: A general provision of minimum of 10% on total Standard Asset should be made. Doubtful Asset: Full provision to the extend of unsecured portion should be made in doing so the realizable value of the security available to the bank should be determined on a realistic basis additionally 20% to 50% of the secured portion should also be provided for depending upon the period for which the advances has been considered as a doubtful are as follows Loss Asset: The entire amount should be written off or full provision should be made for the mount outstanding Treatment of Restructured Sub-Standard Accounts: A rescheduling of installment of principle amount would render sub-standard asset eligible to be continuing in sub-standard category for specified period provided loan or credit facility is fully secured. A rescheduling of interest elements would rendered a sub-standard asset eligible to continue to classified in

AUDIT REPORT ON UCO BANK

sub-standard category for the specified period subject to the condition that amount of sacrifice if any in present value terms is either written off or provision is made to the extend of sacrifice involved in the amount of interest should either be written off or provision made to the extend of sacrifice involves.

AUDIT REPORT ON UCO BANK

CONCLUSION The project the position of Indian banking system as well as the principal laid down by the Basel Committee on banking supervision. This assessment was done in seven major areas, which are core principals, concurrent audit, internal audit, deposit, loan accounting and transparency and foreign exchange transaction. The project concluded that, given the complexity and development of Indian banking sector, the overall level of compliances with the standards and codes is of high order. This project gives the correct ideas about how the major areas can be found by way of effective auditing system i.e. errors, frauds, manipulations etc. form this auditor get the clear ideas how to recommend on the banks position. Project also contain that how to conduct of audit of the banks, what are the various procedure through which audit of banks should be done. Form auditing point of view, there is proper follow up of work done in every organization whether it is banking company or any other company or any other company there no misconduct of transactions is taken places for that purpose the auditing is very important aspect in todays scenario form company and point of view.

AUDIT REPORT ON UCO BANK

PROFILE UCO Bank, formerly United Commercial Bank, established in 1943 in Kolkata,
is one of the oldest and major commercial banks of India. Ghanshyam Das Birla, an eminent Indian industrialist, during the Quit India movement of 1942, had conceived the idea of organising a commercial bank with Indian capital and management, and the United Commercial Bank Limited was incorporated to give shape to that idea. The Bank was started with Kolkata as its Head Office with an issued capital of 2 crores and a paid-up capital of 1 crore. The bank, along with 13 major commercial banks of India, was nationalised on 19 July 1969 by the Government of India. Its name was changed to UCO Bank, in 1985, by an act of Indian Parliament as a bank in Bangladesh existed with the name United Commercial Bank which caused confusion in the international banking arena. As of 6 January 2013 the bank had 2550 Service Units spread all over India, with four overseas branches two each in Singapore and Hong Kong. The Bank has 44 Zonal Offices spread all over India.UCO Bank's headquarter is located on B.T.M. Sarani, Kolkata. Mr. Arun Kaul is currently the Chairman and Managing director of UCO Bank. As on 31 March 2012, Government Share-holding of the Bank was 65.19 per cent. Branch expansion started at a fast pace, particularly in rural areas, and the bank achieved several unique distinctions in Priority Sector lending and other social uplift activities. To keep pace with the developing scenario and expansion of business, the Bank undertook an exercise in organisational restructuring in the year 1972. This resulted into more functional specialisation, decentralisation of administration and emphasis on development of personnel skill and attitude. Side

AUDIT REPORT ON UCO BANK

by side, whole hearted commitment into the government's poverty alleviation programmes continued and the convenorship of State Level Bankers' Committee (SLBC) was entrusted on the Bank for Odisha and Himachal Pradesh in 1983. The year 1985, the name 'United Commercial Bank' was changed into UCO BANK by an Act of Parliament. Over the years, UCO Bank been regarded as one of the well known and vibrant banks in the country. AUDITOR REPORT Report On the Financial Statements We issued our audit report dated 7th May 2013 on the Financial Statements, i.e. Balance Sheet as at 31st March 2013, Profit and Loss Account and Cash Flow Statement for the year ended on that date of UCO Bank. These financial statements were revised by the Board of Directors on 24th May 2013 before circulation to members. We draw attention to note no.10.20 to the financial statements which results in amendment of financial statements due to enhancement of proposed dividend from Rs. 283.34 crores to Rs. 338.05 crores inclusive of dividend distribution tax thereon. Our audit procedures on subsequent events are restricted solely to the amendment of the financial statements as referred in note no.10.20 to the financial statements. We report on revised Financial Statement of Accounts as under: We have audited the accompanying financial statements of UCO BANK as at 31stMarch, 2013, which comprise the Balance Sheet as at March 31, 2013, and Profit and Loss Account and the Cash Flow Statement for the year then ended, and a summary of significant accounting policies and other explanatory information. Incorporated in these financial statements are the returns of 21

AUDIT REPORT ON UCO BANK

branches inclusive of one treasury branch audited by us and 734 branches (including Service branches) audited by branch auditors and 4foreign branches audited by overseas local auditors. The branches audited by us and those audited by other auditors have been selected by the Bank in accordance with the guidelines issued to the Bank by the Reserve Bank of India. Also incorporated in the Balance Sheet and the Profit and Loss Account are the returns from 1849branches which have not been subjected to audit. These unaudited branches account for 10.56 per cent of advances, 34.42 per cent of deposits, 5.41 per cent of interest income and 18.40 per cent of interest expenses. Managements Responsibility for the Financial Statements Management is responsible for the preparation of the Balance Sheet and the Profit and Loss Account as per Forms A and B respectively of the Third Schedule of the Banking Regulation Act, 1949. This responsibility includes the design, implementation and maintenance of internal control relevant to the preparation of the financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the Standards on Auditing issued by the Institute of Chartered Accountants of India. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amount sand disclosures in the financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In

AUDIT REPORT ON UCO BANK

making those risk assessments, the auditor considers internal control relevant to the Banks preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of the accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, as shown by books of bank, and to the best of our information and according to the explanations given to us: (i) the Balance Sheet, read with the notes thereon is a full and fair Balance Sheet containing all the necessary particulars, is properly drawn up so as to exhibit a true and fair view of state of affairs of the Bank as at 31st March 2013 in conformity with accounting principles generally accepted in India; (ii) the Profit and Loss Account, read with the notes thereon shows a true balance of profit, in conformity with accounting principles generally accepted in India, for the year covered by the account; and (iii) The Cash Flow Statement gives a true and fair view of the cash flows for the year ended on that date.

AUDIT REPORT ON UCO BANK

Report on Other Legal and Regulatory Requirements The Balance Sheet and the Profit and Loss Account have been drawn up in Forms A" and "B" respectively of the Third Schedule to the Banking Regulation Act, 1949. Subject to the limitations of the audit indicated in paragraph 1 to 5 above and as required by the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970/1980, and subject also to the limitations of disclosure required therein, we report that: (a) We have obtained all the information and explanations which to the best of our knowledge and belief, were necessary for the purposes of our audit and have found them to be satisfactory. (b) The transactions of the Bank, which have come to our notice have been within the powers of the Bank. (c) The returns received from the offices and branches of the Bank have been found adequate for the purposes of our audit. (d) We are unable to express an opinion on the effect on the accounts if any due to no reconciliation and adjustment of outstanding entries in inter-branch transactions (refer to Note No. 10.16 of Schedule 18) (e) Accounting of commission earned on letter of credit and guarantee issued is on cash basis which is not in accordance with Accounting Standard -9 on Revenue Recognition issued by the Institute of Chartered Accountants of India.

AUDIT REPORT ON UCO BANK

The quantum of such income has not been ascertained. (Refer Note No. 9.2 of Schedule 18) (f) Capital Adequacy and other Ratios disclosed in Note No. 1.1 of Schedule 18 are subject to the effects of the observations in Para (d) and (e) above. In our opinion, subject to our observations in Para(d) to (f) above read with Principal Accounting Policies and Notes on Accounts as per Schedule 17 and 18respectively, the Balance Sheet, Profit and Loss Account and Cash Flow Statement comply with the applicable accounting standards except to the extent stated in Para(e) above. For BAWEJA & KAUL Chartered Accountants Registration No. 005834N (CA SAKSHI DHAR) Partner KAUL For SBA ASSOCIATES Chartered Accountants Registration No. 308136E (CA NILANJANA SEN) Partner Membership No. 061768 For VED AND COMPANY Chartered Accountants Registration No. 012019N (CA POOJA GUPTA) Partner Membership No. 098551

Membership No. 514325 For DASS GUPTA ASSOCIATES

& For GUPTA SHARMA & For A.KAYES & CO. ASSOCIATES Chartered Chartered Accountants Chartered Accountants Accountants Registration No. Registration No. 000112N Registration No. 001466N 311149E (CA AMRUL (CA PANKAJ MANGAL) (CA ASHOK GUPTA) KAYES) Partner Partner Partner Membership No. 097890 Membership No. 017244 Membership No.

AUDIT REPORT ON UCO BANK

050363 Place: New Delhi, Dated: 24th May, 2013